Has Europe regulated itself to death?

 00:00:00:03 – 00:00:25:16
Daniel
Europe wrote the world’s toughest rulebook. Now Brussels is scrambling to loosen it. The fear is that Europe has become so good at regulating new industries that it has forgotten how to build them. But those rules protect workers, consumers, personal data and the environment. Strip those away. And Europe could sacrifice its values without ever closing the gap with America and China regulate too much and Europe risks economic decline.

00:00:25:18 – 00:00:57:03
Daniel
So has the EU regulated itself to death? Welcome to the Dip. Money, power and consequences. I’m Daniel. And joining us now is Cecilia malmström, who is a former EU commissioner who’s negotiated with governments from Washington to Beijing fighting to get Europe the best trade deals possible. And Christina Cafaro has spent more than 25 years advising companies on antitrust, and now argues that the continent’s deeper failure is not simply too much regulation, but too little building.

00:00:57:04 – 00:01:09:03
Daniel
So thank you very much both for joining us. Cecilia, you’ve been wrapped up in all of this world of EU bureaucracy for a while. When you download an app, do you read the terms and conditions that it comes along with?

00:01:09:05 – 00:01:12:10
Cecilia
Not as often as I should. I have to confess.

00:01:12:12 – 00:01:17:16
Daniel
Absolutely. And, Cecilia, I just like to start with this kind of central question that we’re going to ask here.

00:01:17:18 – 00:01:18:20
Cristina
Is the EU.

00:01:18:22 – 00:01:23:20
Daniel
Regulating itself to death? What do you say? Is it overregulated?

00:01:23:22 – 00:01:45:00
Cecilia
Well, it is overregulated. I think that is quite clear. And it has also been stated very clearly in the Draghi and the letter reports that came out a year ago. The commission is trying to do things about it, but there are problems in the internal market that we have not really sorted out for decades. And we suffering from that right now.

00:01:45:00 – 00:02:07:15
Cecilia
There’s, not not enough harmonization when it comes to implementation. When it comes to public procurement, when it comes to rules, when it comes to the different, settings in the different national markets and the internal market is not really yet working fully as a one internal market. And that is hampering innovation and growth, of course.

00:02:07:17 – 00:02:26:02
Daniel
Yeah. It’s difficult to, to get, all of the European countries to agree on one specific track to go down. So, Christina, would you say there’s this kind of adage that’s going to be going around online? America innovates, China replicates, the EU regulates. Is that a fair description?

00:02:26:04 – 00:02:50:02
Cristina
I rolled my eyes as you were. You were mentioning it because I think it is not fair. Europe is an incredibly innovative continent. We have terrific innovation. We have enormous capabilities in research startups. We are second to none. In fact, I startups rate creation is even greater than the U.S.. So that is a mischaracterization of Europe, which is immensely rich and capable.

00:02:50:04 – 00:03:14:21
Cristina
On the regulation question, there is no doubt in my view that that a major blind spot that we’ve had as Europeans is to convince ourselves for the past two decades, for the past generation, that the answer lies in containing the market power of the existing American giants and the notion of what would happen if we did that was very nebulous.

00:03:14:22 – 00:03:53:20
Cristina
There was an assumption that was very vague, that if we regulated them somehow, we would be okay. But regulating a monopolist or an oligopoly does not automatically create US assets in the market. This is being the major blind spot. So it’s not that Europe is overregulated as such. There is too much regulation. Fine. But the fundamental flaw is that we put all our energy, all our thinking, all our emotion into regulating what we do not own and what we do not control.

00:03:53:22 – 00:03:59:23
Cristina
And regulating not control doesn’t build you assets. This is the problem.

00:03:59:24 – 00:04:15:23
Daniel
Okay? And Christina, without getting into any of the the Brussels is the kind of language of Brussels. What do we mean when we talk about regulations and bureaucracy? What are we talking about here? Can you just make it a little bit more concrete for us?

00:04:16:00 – 00:04:52:05
Cristina
Well, when it comes to specifically digital platforms, there is history. For the last 20 years, the commission has been a pioneer trying to contain, as I say, the power of these platforms, from Google to Amazon to, Apple to Microsoft initiating a number of antitrust investigations of their market power. Then at some point around 2020, there was the view that we were not getting very far with individual investigations because they take long, because it takes time, because they’re never so effective.

00:04:52:09 – 00:05:15:22
Cristina
And so we should introduce regulation. In other words, we should tell them, do not do this. But when you tell an all powerful giant, do not do this first, they will find every conceivable way of doing it in a different way. Two they have no incentive to comply with the mandate. Three it takes a very long time to do anything anyway.

00:05:15:22 – 00:05:29:19
Cristina
So even if you get to the point at which you tell them what to do, they will challenge you. They will challenge you in Luxembourg and they will challenge it again. And if they find so, the whole process takes decades. We coming to this.

00:05:29:19 – 00:05:38:19
Daniel
Point, you mean these these massive gatekeepers, you know, Facebook with that, with, Apple, Microsoft, all of these?

00:05:38:21 – 00:06:05:21
Cristina
Absolutely. I mean, the commission is as has pursued a pioneering case against Google in 2010. And then another 1 in 2014. This case is what actually decided against Google officially in 2015 and 17. We adjust now, ten years later, coming to the end of the appeal process in Luxembourg, pursued by these companies against the commission’s decision. And you know what happens.

00:06:05:21 – 00:06:36:12
Cristina
The commission can find Google for billion euros, but that money doesn’t go anywhere. That money sits with Google in escrow until all of the processes are exhausted. So that money that’s fine isn’t hurting anyone. It isn’t benefiting. Europe is sitting in a bank account owned by Google only now if when the Court of Justice comes to the conclusion that effectively the commission was right and the behavior was anti-competitive, they will pay the full billion.

00:06:36:18 – 00:07:05:07
Cristina
But how does that create me in Europe, a cloud? How does that create me a software industry? It’s all very nice, but where is the building? We are a colony. 90% of our digital infrastructure is owned by non-Europeans. 90% of cloud of infrastructure. Why? Because why? We will need to doing the regulation they would carpeting Europe with data centers.

00:07:05:09 – 00:07:20:02
Cristina
And you know, this is not because I have any young American sentiment. I am very much not that way. But we cannot be a continent with our own capabilities and economic strength if our entire infrastructure is owned by someone else.

00:07:20:03 – 00:07:36:01
Daniel
Well, and I take your point on, on that, but why have we not produced serious challenges? In that time, we’ve been great at, regulating with the Digital Markets Act, for example, but yet we haven’t produced our own Google is and Facebook’s and so on. Why?

00:07:36:03 – 00:08:00:13
Cristina
First of all, we have not been great at all because we have produced the laws with great good faith, with great intentions. But none of this has worked. Let me just be very clear about that. The product of all these regulation has been so far to zero. We have nothing to show in terms of benefiting European business and enterprises.

00:08:00:18 – 00:08:24:17
Cristina
Why haven’t we built our own equivalent? Well, there is a host of reasons that Cecilia was actually alluding to. Europe is fragmented. We don’t have a capital market. We have a number of reasons why we haven’t produced the equivalent. But at the same time, I don’t think we should be looking to produce something equivalent to Silicon Valley. Europe is not going to be like America.

00:08:24:20 – 00:08:48:03
Cristina
We have multiple ecosystems, which are tremendous. If you travel from Stockholm to Copenhagen to Warsaw to Berlin to Zurich, to Amsterdam, to anywhere, you have tremendous tech ecosystems in Europe. We just don’t have a single Silicon Valley. So what? And we have a lot of money that we need to spend now. We have these enormous pools of capital.

00:08:48:08 – 00:09:13:12
Cristina
Europe saves twice as much as America, 1.4 trillion a year, again, 0.7 of that 1.4 300 billion goes to the US to fund American innovation. We don’t fund our own startups. This is where we need to move. Forget regulating Google. It’s not going to create me a cloud. It’s a pipe. Dream is magical thinking it doesn’t happen.

00:09:13:13 – 00:09:22:12
Daniel
So Cecilia, what’s your response to that? I want to turn to you on on trade in a moment. But just talking about digital regulation. How do you see it.

00:09:22:14 – 00:09:44:04
Cecilia
Well, we have digital regulation for a reason. First of all, we have, regulation that true to regulate competition. That is one thing. And then we have regulation to protect citizens and the consumers online with digital markets, the AI act, and so on. And there recently there has been a whole range of, investigations against the big tech, the US big techs.

00:09:44:10 – 00:10:03:06
Cecilia
That’s one thing. And now they’ve been revised and I’m sure there can be some some revisions. There. But you have to put that in a broader context that we said from the beginning that we have very long permitting processes. We have a fragmentation internal market. We don’t have scale in Europe. We don’t have a capital market. This has been discussed for 20 years.

00:10:03:06 – 00:10:27:24
Cecilia
It’s still not happening. We don’t have. And that’s why the startups because we have some good tech companies in Europe, but we don’t have the capital to scale them up. We need to, to focus much more on on energy costs, on demographics. We have labor skills. And so so it all fits together in a big picture of why Europe do not innovate to do the things that we in some areas.

00:10:27:24 – 00:10:55:09
Cecilia
I fully agree with you. We cannot compete with the Americans, but we can start building up and focusing on some strategic innovations as well. And this is what is being discussed right now with the budget. Let’s see where that ends. It’s a big, big discussion that would go on for a year. So one where where the trying to see where we can jointly, on a European level, focus on some strategic areas where we could build out our, dependencies.

00:10:55:14 – 00:11:05:16
Cecilia
But but of course, we need we need the money to do that. We need, capital market, and we need innovation. And that that goes together. And we haven’t done enough.

00:11:05:16 – 00:11:37:20
Cristina
But I must say, as I listen to Cecilia speaking, I cannot help but thinking how much of a product of Brussels you are, Cecilia. And it’s inevitable. I have a very, very different view. We are not going to get a capital market union in our in my lifetime. We are not going to get a single market. In my lifetime, we as Europeans have been infantilized and I mean in the in on the ground into believing that the answer comes from above, that the European Commission at some point must do something.

00:11:38:00 – 00:11:47:11
Cristina
And this is going to be the answer. But we know it doesn’t. It’s always not enough or too late. We do not good intentions. So this is.

00:11:47:13 – 00:11:48:14
Daniel
But but.

00:11:48:16 – 00:11:51:04
Cristina
At the geopolitical reality. Sure.

00:11:51:07 – 00:12:00:04
Daniel
But I just want to take I don’t want to but we are in the, the environment in which we are in I mean, this is the situation which, you know, how would you.

00:12:00:04 – 00:12:01:00
Cristina
How would you know.

00:12:01:05 – 00:12:05:03
Daniel
How would you get a bottom up version of what you’re asking for? Cannot, cannot even walk.

00:12:05:03 – 00:12:36:24
Cristina
Yeah. Well, this is my fundamental private. No. Where is the private sector? The private sector is the answer. Capital allocators and businesses, they need to move and they need to move because it makes sense for them to move. We’re seeing it. Airbus today announced they’re moving out of American American cloud and going into scale way. We are seeing it happen because companies are making decisions regardless of what the commission says, because no one is sitting here waiting for the commission to give us a rule.

00:12:37:05 – 00:13:01:24
Cristina
No one is waiting for that or expecting it. The commission had a tech sovereignty package to issue in June, which was a tremendous disappointment because it was completely driven by hyperscalers and US ambassador telling them, nice cars you’ve got there. We’ll sit on your tariff and see how you feel about that. So listen, the commission jolly good. Do your thing, do your knitting.

00:13:02:01 – 00:13:06:08
Cristina
But the private sector needs to move capital allocators.

00:13:06:08 – 00:13:12:21
Daniel
But why haven’t they institutional? But surely they have the freedom to move right now. If they wanted to. And so why aren’t they doing it?

00:13:12:21 – 00:13:38:20
Cristina
Yes, they are, and they are and they are. And they are beginning to because the geopolitical situation has changed so dramatically until now. Let’s not forget Europe is an immensely complacent continent in which everything is top down. Elites are incredibly complacent and, quite satisfied with the life they lead in every country. Life is sweet. In Europe. No one has got any need to do very much because we live extremely well.

00:13:39:01 – 00:14:02:22
Cristina
But the geopolitical situation has changed so dramatically that nowadays boards are faced with the double whammy of having to implement AI and having to deal with sovereignty, which is the big question are we resilient? Are we sovereign? This is what is driving forwards. Why haven’t they done it until now? Donald Trump now there is a major change. And this is driving trade.

00:14:02:22 – 00:14:26:06
Cristina
It’s driving digital. It’s driving everything. So why haven’t capital allocators done it. So first the returns on European tech were not very good. Now that we see demand for European tech becoming suddenly big, then we are seeing capital moving towards supporting, you know what the European Pension Fund have been investing in so far. They have trillions under management.

00:14:26:06 – 00:15:00:05
Cristina
They invest in real estate, in, in, in some form of retirement home and bonds. It is unconscionable that while American pension funds invest in tech on European pension funds, sedan knitting and doing retirement homes, so this is changing. They are beginning to develop an investable window, an appetite. And I have faith that this is happening. You know getting announcement like f us moving to the Dutch central bank, moving others, moving randomly.

00:15:00:05 – 00:15:10:07
Cristina
This is part of a movement and I think it is happening. And we are not waiting for the commission to register to like, you know, to mandate this change. It ain’t happening. No one cares.

00:15:10:09 – 00:15:16:05
Daniel
So Cecilia, the EU Commission is just moving too, too slowly. What are you saying?

00:15:16:07 – 00:15:37:24
Cecilia
I’m not here to defend the commission I did six years ago. But but I have to say that the member states very often pushed by industry, are pushing the commission to take action. And when sometimes there are problems in the German car industry, for instance, they are all asking for help from Brussels to only Brussels, sitting there inventing new rules because they think it’s funny.

00:15:38:01 – 00:16:01:05
Cecilia
But but of course it is slow. Yes, everybody agrees with it. This is a little part of of, of the structure, as I said. Now the commission is rolling out sort of simplification, big packages. They’re called omnibus in, in Brussels lingo. The idea is good, but the content is not really good because they’re not done with proper implementation and impact assessment.

00:16:01:08 – 00:16:36:10
Cecilia
They haven’t asked enough the business. What do you really need from us? How can we simplify not just taking away that little rule and that the rule, but also simplifying really in a way that that still protects environment and citizens and so on. But that makes it manageable for big and small companies. And I would welcome if the industry was much more present in the debate today on how we should organize our industrial policy in Europe in the best way possible, because industry complains a lot, but they’re not really active and trying to push the agenda.

00:16:36:10 – 00:17:01:22
Cecilia
I would really welcome to do that. And on the capital market, I agree with Christi Knights. We’ve been talking about this for decades in the country. I come from Sweden, we have it. And it’s very useful to have, access to capital for small startups and companies. Some of the countries have it as well Denmark, the Netherlands, etc. but it’s the big countries who are, talking about the need to have it, but they’re not doing the necessary things, on their own.

00:17:01:22 – 00:17:10:20
Cecilia
And then it’s very difficult. The commission cannot. So the who was put was the market. You need the, the, the funds, the different capitals to do it.

00:17:10:22 – 00:17:36:10
Daniel
Well see that I know that you’re not part of the European Commission now, so you don’t have to defend what they’re currently doing. But you made when you were in, an EU commissioner, you made labor environmental standards, as you just mentioned, central to your trade for all strategy. But why should a company accept those costs and invest in Europe, when America, for example, offers a permissive alternative?

00:17:36:12 – 00:17:57:17
Cecilia
Well, the, the chapter on sustainable development that are in all trade agreements, also the ones that has been concluded lately, they are all departing not from EU laws but from international conventions. They are ILO convention, International Labor Organization under the United Nations, saying that you should have the right to organize you should have the right, to strike.

00:17:57:17 – 00:18:24:12
Cecilia
You should have the right to to negotiate salaries. You should not have Liliom, child labor, etc.. So these are international conventions that partner countries have signed up to. They’re not always following them, but they have signed up to them. So we’re not forcing, you know, inventing new rules. It is based on international conventions that exist. Also, when it comes to environment, there are some interventions that are there.

00:18:24:12 – 00:18:50:11
Cecilia
And then with some countries you can go further, you can be more ambitious with other countries like the one the agreement that was just concluded with India, which has enormous potential 2 billion customers and citizens then, is slightly less ambitious in the in the sustainable development chapter. But there is a partnership agreement that the EU should help, India green transition to a larger extent.

00:18:50:13 – 00:18:51:16
Daniel
Okay.

00:18:51:18 – 00:18:56:11
Cecilia
Yeah. That is not the main problem with lack of innovation or investment in Europe.

00:18:56:13 – 00:19:14:16
Daniel
Okay. And Christina, I want to come back to you to the the corporate point of the companies that have told me that we should, remove some of these, rules, some of these regulations, whether it’s on labor laws about when people can retire or how much they need to work in a week, or whether it’s about environmental rules.

00:19:14:16 – 00:19:33:12
Daniel
And this kind of thing. I think a lot of people will will worry when they hear that, seeing that, okay, yes, you can encourage companies like that, but is it then workers who have to shoulder the burden of less protections? Are they being sacrificed at the altar of corporate profits? In that case?

00:19:33:14 – 00:19:55:04
Cristina
So I mean, there is no question that European labor laws are more burdensome than the US. I mean, by definition, on the other hand, this is the society we choose to live in and the kind of choices we have made as Europeans. We cannot really make a direct comparison. We have much more social protection and this is a quality of life issue that we appreciate as Europeans.

00:19:55:05 – 00:20:29:07
Cristina
So I think, at the same time, I don’t like it when and I want you to be aware that I’m not putting the the guilt on, on the commission for not doing enough and no one else. I also agree with the position that Cecilia took, that the corporate, entities need to do much more and not just blame regulation for their failings, because it has become a very fashionable thing now amongst the European corporate elite to say, oh, we are not where we should be.

00:20:29:07 – 00:20:57:24
Cristina
You know, the competitiveness, the Draghi productivity growth because of all these regulation that is, in large measure also an excuse. And the reality is the European corporate sector need to adopt. You need to take responsibility for growth in general and not blame someone else for the rules that somehow prevent you from doing something. So again, this is something that I think is overstated.

00:20:57:24 – 00:21:19:21
Cristina
Yes, regulation is is burdensome. I agree with Cecilia that companies cannot just complain about it, but then they need to be heard and not just kind of go to Brussels for our lobby dinner with von der Leyen. This is what happens the whole time. Companies go there and they think they’ve done their bit because they had dinner with the president and they can take selfies and they can lobby.

00:21:20:01 – 00:21:45:24
Cristina
This isn’t a grown up engagement, right? Do something concrete. If you have the six major CEOs of Europe going for a dinner with the president and then putting a selfie online saying, we had dinner with the president and then making a statement that says we are representing 1 trillion in assets or whatever it is, and billions in 120 billion in revenues, a million workers.

00:21:45:24 – 00:22:03:08
Cristina
You think, okay, so what are you going to tell me next? Are you’re going to tell me next year that you are going to invest 200 billion in European? I know, no, they went to have dinner to just tell the commissioner to to the president to reduce regulation a little bit. So I love you. Dinner. In other words, this isn’t engagement.

00:22:03:09 – 00:22:06:02
Cristina
This is lobbying and it’s not good. Yeah.

00:22:06:04 – 00:22:13:15
Daniel
Well, I was going to ask you, Christina, if we’re lighting a bonfire of red tape. What are you throwing on it? It sounds like you’re throwing lobby dinners on it.

00:22:13:17 – 00:22:25:13
Cristina
Oh, yeah. Oh. Go on. The Brussels bubble is is is, is to be incinerated from beginning to end. It is a complete a complete lobby, lobby industry.

00:22:25:15 – 00:22:42:10
Daniel
Very interesting perspective to end on, Cecilia. You’re also invited to the bonfire. You’ve helped to create some rules during your time. I’m sure that you’ll say that they’re all justified. Rules. But if you think of some things that you want to get rid of, what is it going to be? What are you throwing on the red tape?

00:22:42:10 – 00:22:45:24
Daniel
Bonfire?

00:22:46:01 – 00:23:09:06
Cecilia
Well, well, I think there’s a lot of, reporting simplification that can be done. For instance, we are asking companies, both tiny little companies and big multinationals, to do a lot of reporting. And this is something that that is creating a lot of burden to companies. Now it’s starting to be become simplified. There are attempts to rectify it, but this has been been a big hurdle.

00:23:09:06 – 00:23:33:03
Cecilia
This is what companies say to me all the time that all this reporting, instead of innovating, instead of it being out with our customers, we we we do this reporting. And then, of course, if we could simplify the whole procedure and really work towards even if capital markets will not come tomorrow, at least we could harmonize the licensing, the employment and the permitting processes and so on.

00:23:33:03 – 00:23:51:01
Cecilia
That would be so much, genuine if we can do that, and we cannot blame anybody else outside Europe for doing that, because we have I remember when we voted on this in the European Parliament in 2003, that’s more than 20 years ago, still hasn’t up.

00:23:51:03 – 00:24:07:14
Daniel
That’s it for this week on the dip. Thank you very much for listening. Don’t forget to leave a comment or question. Any feedback is welcome wherever you’re listening to this or watching this. And if you’re not subscribed in the podcast app of your choice, go ahead and do so. Just look for the dip. But until next time, thank you very much for watching.

00:24:07:16 – 00:24:08:22
Daniel
That’s it. See ya.